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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 285:
Capital Subsidies and the Performance of Firms

Fredrik Bergström

Abstract: : In many countries, governments grant different capital subsidies to the business sector in order to promote growth. Also the EU, provides this type of subsidies. As De Long and Summers (1991) suggest there might be market failure justifications for public subsidisation of firms. However, because the use of subsidise is not unproblematic, it is far from clear how they affect long-run economic growth. This study examines the effects on total factor productivity of public capital subsidies to firms in Sweden between 1987 and 1993. Panel data which distinguish between subsidised and non-subsidised firms in the manufacturing industry are used. The results suggest that subsidisation can influence growth, but there seems to be little evidence that the subsidies have affected productivity.

Keywords: Industrial policy; regional policy; capital subsidies; total factor productivity (TFP); (follow links to similar papers)

JEL-Codes: H20; H81; L52; L98; O20; R58; (follow links to similar papers)

19 pages, November 23, 1998

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